H&R Reports Second Quarter Results; Increases Monthly Distributions
TORONTO, Aug. 12 /CNW/ - H&R Real Estate Investment Trust ("H&R REIT") and H&R Finance Trust (collectively, "H&R") (TSX: HR.UN; HR.DB; HR.DB.B, HR.DB.C, HR.DB.D) announced its financial results for the second quarter ended June 30, 2010.
Financial Highlights
The following table includes non-GAAP (Generally Accepted Accounting Principles) information that should not be construed as an alternative to net earnings or cash provided by operations and may not be comparable to similar measures presented by other issuers as there is no standardized meaning of funds from operations ("FFO"), normalized FFO ("NFFO") and adjusted funds from operations ("AFFO") under GAAP. Management believes that these are meaningful measures of operating performance. Readers are encouraged to refer to H&R's MD&A for further discussion of non-GAAP information presented.
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3 months ended 6 months ended
June 30 June 30
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2010 2009 2010 2009
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FFO (millions)(1) $56.6 $53.4 $67.7 $121.4
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FFO per Stapled Unit (basic) $0.38 $0.36 $0.45 $0.82
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NFFO (millions)(1)(2) $55.1 $59.6 $107.5 $124.1
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NFFO per Stapled Unit (basic) $0.37 $0.40 $0.72 $0.84
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AFFO (millions)(1) $55.8 $58.5 $68.0 $119.8
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AFFO per Stapled Unit (basic) $0.37 $0.40 $0.46 $0.81
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Cash distributions paid
(millions) $23.4 $24.5 $48.1 $49.2
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Cash distributions per
Stapled Unit $0.18 $0.18 $0.36 $0.36
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(1) H&R's MD&A includes reconciliations of: net earnings to FFO and NFFO;
FFO to AFFO; and AFFO to cash provided by operations. Readers are
encouraged to review such reconciliations in the MD&A.
(2) NFFO adjusts FFO for additional tenant recoveries for capital
expenditures in excess of items expensed in property operating costs,
the net loss on derivative instruments and foreign exchange, the
mortgage interest accruals on non-recourse mortgage defaults and
other non-recurring items.
For the 6 months ended June 30, 2010, FFO and AFFO were each reduced by a one-time, non-recurring loss of $38.8 million on early repayment of the Fairfax non-convertible debentures in February 2010. Excluding this one-time debenture repayment loss, FFO and AFFO for the 6 months ended June 30, 2010 would have been $0.71 and $0.72 respectively per Stapled Unit. The following table includes results reported in accordance with Canadian GAAP.
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3 months ended 6 months ended
June 30 June 30
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2010 2009 2010 2009
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Rentals from income properties
(millions) $151.3 $149.0 $302.6 $305.3
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Net earnings (millions) $144.7 $18.9 $127.4 $41.0
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Net earnings per Stapled Unit
(basic) $1.00 $0.13 $0.88 $0.29
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Cash provided by operations
(millions) $49.7 $51.1 $111.9 $120.5
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SIFT Update
During the second quarter of 2010, H&R REIT completed the necessary restructuring to qualify for the REIT Exemption under the SIFT rules commencing January 1, 2011. Accordingly, the net future income tax liability of $124.8 million for the 3 months ended June 30, 2010 and $123.3 million for the 6 months ended June 30, 2010 was reversed into earnings. Excluding this income tax recovery and the one-time debenture repayment loss of $38.8 million, basic net earnings per Stapled Unit would have been $0.14 for the 3 months ended June 30, 2010 and $0.30 for the 6 months ended June 30, 2010.
As at June 30, 2010, H&R's debt to gross book value (calculated in accordance with the REIT's Declaration of Trust) was 50.6% compared to 52.5% as at December 31, 2009, and non-recourse debt to total debt was 44.3% (44.9% at year end 2009). The improvement is primarily due to changes to the definition of this ratio which were approved by the unitholders at the annual general meeting in June 2010.
Development Highlights
H&R REIT is currently building The Bow, a two million square foot landmark office building in Calgary's downtown financial district. EnCana Corporation will be head-leasing the entire office tower and all underground parking spaces on a triple-net basis for an initial term of 25 years including annual contractual escalations. As at June 30, 2010, H&R REIT had incurred approximately $846 million of the $1.33-billion budgeted costs (excluding interest costs capitalized for accounting purposes). H&R REIT has effectively locked in 91% of total budgeted costs before contingencies and has successfully secured all of the financing required for completion of this trophy office development.
Operating Highlights
H&R REIT's operating strategy is to stabilize annual earnings and minimize market risk by leasing and mortgaging its properties on a long-term basis. As a result, the average remaining term to maturity as at June 30, 2010 was 10.3 years for leases and 8.0 years for mortgages payable.
Distribution Policy Adopted
H&R REIT also announced that its trustees have adopted a distribution policy pursuant to which the monthly combined distribution is intended to be increased as shown in the following table.
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Monthly Annualized
Distribution Distribution
Per Per
Distribution Period Stapled Unit Stapled Unit
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Q3 2010 (July, August
and September) $0.0700 $0.84
Q4 2010 (October, November
and December) $0.0725 $0.87
Q1 2011 (January, February
and March) $0.0750 $0.90
Q2 2011 (April, May
and June) $0.0775 $0.93
Q3 2011 (July, August
and September) $0.0800 $0.96
Q4 2011 (October, November
and December) $0.0825 $0.99
Q1 2012 (January, February
and March) $0.0850 $1.02
Q2 2012 (April, May
and June) $0.0875 $1.05
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H&R's payout ratio is projected to remain one of the lowest in the Canadian REIT sector, even with these anticipated distribution increases. By the end of the second quarter 2012, upon completion and full occupancy of The Bow, the trustees will review this distribution policy taking into account the additional cash being generated by The Bow. The trustees retain the right to re-evaluate this distribution policy from time to time as they consider appropriate. As all distributions are at the sole discretion of the Trustees, and remain subject to the declaration by the trustees, there is no assurance that the actual distributions declared, if any, will be as provided in this distribution policy.
Monthly Distributions Declared
The next declared distributions are scheduled as follows.
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Distribution/
stapled unit Annualized Record date Distribution date
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September 2010 $0.0700 $0.84 September 16 September 30
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October 2010 $0.0725 $0.87 October 15 October 29
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November 2010 $0.0725 $0.87 November 16 November 30
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About H&R REIT and H&R Finance Trust
H&R REIT is an open-ended real estate investment trust, which owns a North American portfolio of 33 office, 118 industrial and 124 retail properties comprising nearly 39 million square feet, with a net book value of $4.1 billion. The foundation of H&R REIT's success since inception in 1996 has been a disciplined strategy that leads to consistent and profitable growth. H&R REIT leases its properties long term to creditworthy tenants and strives to match those leases with primarily long-term, fixed-rate financing. As a result, leases representing only 4% of total rentable area will expire from Q3 2010 to Q4 2012, while only 12.5% of H&R REIT's total mortgage payable will mature in that period.
H&R Finance Trust is an unincorporated investment trust, which primarily invests in notes issued by an H&R REIT subsidiary. In 2008, H&R REIT completed an internal reorganization which resulted in each issued and outstanding H&R REIT unit trading together with a unit of H&R Finance Trust as a "stapled unit" on the Toronto Stock Exchange.
Additional information regarding H&R REIT and H&R Finance Trust is available at www.hr-reit.com and on www.sedar.com.
Forward-looking Statements
Certain information in this news release contains forward-looking information within the meaning of applicable securities laws (also known as forward-looking statements) including, among others, statements relating to the objectives of H&R REIT and H&R Finance Trust (together, "H&R"), strategies to achieve those objectives, H&R's beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts including, in particular, H&R REIT's expectation regarding future developments in connection with The Bow, and the amount of actual distributions to unitholders notwithstanding the trustees adoption of a distribution policy (which takes into account the REIT's covenant to its lenders to not distribute cash in excess of 70% of FFO). Forward-looking statements generally can be identified by words such as "outlook", "objective", "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "should", "plans", "project", "budget" or "continue" or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect H&R's current beliefs and are based on information currently available to management. These statements are not guarantees of future performance and are based on H&R's estimates and assumptions that are subject to risk and uncertainties, including those discussed in H&R's materials filed with the Canadian securities regulatory authorities from time to time, which could cause the actual results and performance of H&R to differ materially from the forward-looking statements contained in this news release. Those risks and uncertainties include, among other things, risks related to: prices and market value of securities of H&R; availability of cash for distributions; development and financing relating to The Bow development; restrictions pursuant to the terms of indebtedness; liquidity; credit risk and tenant concentration; interest rate and other debt related risk; tax risk; ability to access capital markets; dilution; lease rollover risk; construction risks; currency risk; unitholder liability; co-ownership interest in properties; competition for real property investments; environmental matters; reliance on one corporation for management of substantially all H&R REIT's properties; changes in legislation and indebtedness of H&R. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking statements include that the general economy is stable; local real estate conditions are stable; interest rates are relatively stable; and equity and debt markets continue to provide access to capital. H&R cautions that this list of factors is not exhaustive. Although the forward-looking statements contained in this news release are based upon what H&R believes is reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. All forward-looking statements in this news release are qualified by these cautionary statements. These forward-looking statements are made as of today, and H&R, except as required by applicable law, assumes no obligation to update or revise them to reflect new information or the occurrence of future events or circumstances.
For further information: please contact Larry Froom, Chief Financial Officer, H&R REIT, 416-635-7520, or e-mail [email protected]
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